A Fresh Look at Digital Trade in North America: We May be Underestimating the Economic Significance of Data Flows

Last week on December 1, SIIA partnered with George Washington University and the Centre for International Governance Innovation to take “A Fresh Look at Digital Trade in North America.” The livestream can be accessed by anybody who has a Facebook account and is available here. Pictures from the event can be found here on the Institute for International Economics Facebook page. There is also Politico reporting from the discussion. The NAFTA renegotiation is a top SIIA goal and the Association’s priorities can be found in this testimony.

The idea behind the panel discussions was to do two things. First, see what could be added to the conversation on “Measuring the North American Digital Economy.” Second, conduct a discussion on what “A Comprehensive Approach to Digital Trade in NAFTA 2.0” might look like. This blog focusses on the first panel.

There is increasing support, albeit still not universal, for the idea that cross-border data flows should be permitted and data server localization banned (positions that SIIA strongly supports). That is why the United States is correctly putting forth ambitious proposals for the digital trade chapter in NAFTA 2.0. These ideas can seen in the updated negotiating objectives.

Jessica Nicholson, Economist with the Commerce Department’s Office of the Chief Economist, provided information on what ICT and potentially ICT-enabled services consist of and correspondingly why cross-border data flows are important. The bottom line from her presentation is that we may be underestimating the economic significance of data flows. The reason is many data flows occur between or within firms without payments being attached to them so the trade statistics do not capture them. Other services such as email, search, social media, maps and directions are often provided to consumers free of charge and are also not covered. Even so, Nicholson’s estimates of 2016 potentially ICT-enabled services exports to Canada ($27.8 billion) and Mexico ($8.8 billion) are impressive, yet likely conservative as mentioned above.

Martha Lawless, Head of the Services Division at the United States International Trade Commission, provided information on estimates of how TPP could have reduced trade costs for U.S. services exporters. Assuming a renegotiated NAFTA includes “TPP-plus” digital trade provisions (a safe assumption), costs for U.S. exporters dependent on data flows could go down significantly with respect to trade with Canada and Mexico.

Jordan Khan, Second Secretary at the Canadian Embassy, reminded the audience of the tremendous extent of the U.S.-Canada trade relationship. Canada is the United States’ second largest trading partner. Goods and services trade totaled an estimated $627.8 billion in 2016. The U.S. services trade surplus (much of it software) was $24.6 billion in 2016.

Nicholas Bramble, Trade Policy Counsel at Google, provided vivid examples and analogies for what is happening in today’s data-driven trade world. He compared the impact that the invention of the container in 1956 had for trade and globalization with how the development of data packets enable exponentially greater data flows with increasing economic value.

The good news is that the governments of the United States, Canada, and Mexico recognize the mutual importance of digital trade. The Trump Administration certainly recognized this when it released its November 2017 updated NAFTA negotiating goals (see page 8). So assuming that the non-digital trade related issues surrounding the renegotiation are worked out, there is every reason to believe that NAFTA 2.0 will contain modern digital trade provisions. This would be an excellent outcome both for the NAFTA partners and for U.S. economic leadership in the world because such a NAFTA could be a model for other countries.